Richard Holden, head of franchising at Lloyds Banking Group, explains the importance of a great business plan
Franchising is becoming an increasingly popular option for enterprising individuals who are setting up their own businesses, as it provides them with the reassurance of a tried, tested and proven model, as well as initial training and ongoing support.
Business owners looking to secure the financial backing for their franchise investment plans frequently turn to a bank for assistance. One way to guarantee that you receive relevant, sector specific support and funding is to approach a lender that has a dedicated franchise team, such as Lloyds Bank.
In doing so, your bank manager will have a solid understanding of the challenges franchise owners are likely to face and can tailor the most appropriate funding to fit your requirements.
Before your first meeting with the bank manager, it’s important that a comprehensive business plan is produced. If you’ve never written a business plan before, it’s advisable to complete the business planning section of the Prospect Franchisee Certificate, which has been jointly developed by Lloyds Bank and the British Franchise Association.
This modular training programme of informative videos is free and can be accessed via the bfa.trainme.tv website. In addition to covering the financial aspects of franchising, it also provides essential insight into what it takes to be a successful franchisee.
The plan should provide a detailed description of the service and products you’re looking to provide, while outlining your objectives and strategy to build a profitable franchise.
It should be punchy - a common mistake is to make it too detailed. Ensure that it grabs the bank manager’s interest. A bank isn’t looking for a 200-page document going into microscopic detail, however it will expect you to provide commentary on your skills and experience, business objectives, the franchise brand, local market, competitors, potential clients, suppliers, premises, staff, marketing strategy, financial requirements, available security and any contingency plans you may have considered.
How do you ensure your business plan packs the winning punch? There’s truth in the saying: ‘If you fail to plan, you plan to fail’, especially when you’re starting a new business. Those who understand the benefits of business planning are more likely to be successful than those who react to day to day operational issues and are constantly fire fighting problems.
The initial objective of the document is to help you raise finance for the business. It will also help you understand what you wish to achieve and is an essential document to review your performance against your projections, alerting you to anything that’s not going according to plan, as well as identifying potential opportunities for the business.
The plan should demonstrate that you understand the business opportunity and the local market for your product or service. Most banks can provide a business planning template for you. Accountants can also provide advice in producing the plan, but remember it’s your document and is too important to leave to someone else to write.
Financial projections for the business are another vital assessment tool. Most franchisors will provide you with illustrations of possible trading performance, but it’s up to you to dig deeper. Find out what the financial projections are based upon and the assumptions that have been used.
A business plan is a useful tool to help gather thoughts and set objectives for the business. It should demonstrate there is sufficient demand for the product or service and that you have a good understanding of the market. It should also set out the competitive advantage or unique selling point your business may have.
Send a copy of your business plan to the bank manager a few days ahead of your appointment to allow them to become familiar with the content.
As your meeting approaches, you should have an excellent understanding of your strategy and it’s advisable to practice a script that briefly introduces your business proposal.
This projects a professional image and offers credibility to your proposition, while the depth of your research will allow you to comfortably answer any questions posed.
The bank manager will naturally be interested in the operational and financial aspects of your business and will expect you to be able to respond confidently and accurately.
Think of those entrepreneurs on BBC’s Dragons’ Den programme. From the outset, many don’t stand a chance of securing the investment they are seeking because their presentation is poorly conceived or they don’t have a good understanding of the key financial information. Consequently, they are unable to establish their own creditability and project confidence in their business.
The level of finance available from a bank will depend upon the strength of the franchise system and brand, as well as the business plan you’ve produced. Typically, for well established franchises the bank will consider lending up to 70 per cent of the total set-up costs, including working capital. For newer, less established franchise systems the amount of finance available may be lower.
For lending in excess of £25,000, a bank will probably require security for the loan, which commonly will be a legal charge over a residential property with sufficient equity.
Don’t be put off if there isn’t any security to offer the bank. The government backed Enterprise Finance Guarantee scheme may be available for those who have a strong business proposal, but who lack security that the banks usually require.
It’s sensible to have a contingency reserve fund to fall back on in case the business takes longer to get off the ground than originally anticipated.
Once you’ve established a relationship with your bank and secured the necessary financial support, it’s important to build on this and keep regular communication channels open. Offering regular updates around your progress breeds confidence in your ability to manage the business.
Self-employment can be a daunting prospect, but hard work, determination and a large amount of common sense will take you a long way towards achieving your business goals.
If you set realistic goals and undertake a meticulous planning process, once you’ve delivered your business plan with confidence and answered all questions knowledgably you have the basis for a successful relationship with your bank manager as you look to expand into franchising.
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